Tax professionals have been expecting the IRS to limit valuation discounts for some time—and that day has finally come.
Earlier this month, the IRS issued proposed regulations limiting valuation discounts related to the transfer of interests in family-owned entities (i.e., family businesses, limited partnerships, etc.). The proposed regulations won’t be effective until they’re published as “final”—sometime after a public hearing on Dec. 1. That means you still have time to leverage the benefit of valuation discounts.
The federal estate tax exemption currently stands at $5.45 million for individuals (close to $11 million for a married couple), so most taxpayers would not have a taxable estate under current law. If you expect to have a taxable estate, it may behoove you to contemplate advanced wealth transfer techniques, such as these valuation discounts, to reduce your estate tax bill.
All of that said, keep in mind that this is a classic instance of the old adage, “don’t let the tax tail wag the dog.” Changing laws and regulations should not be the only factor to dictate changes in your estate plan. Any transaction should fit within your overall wealth transfer plan or business strategy.
